Impact of Flow Based Market Coupling on the European Electricity Markets

Abstract

AbstractFlow Based Market Coupling is the target model for determining exchange capacities in the internal European Electricity Market. It has been in operation in Central Western Europe since 2015 and is scheduled to be extended to the wider Core region in the near future. Exchange capacities have a significant impact on market prices, exchanges and the energy mix, thus also determining the CO$${}_{2}$$ 2 footprint of electricity generation in the system. Stakeholders therefore need to develop an understanding for the impact of Flow Based Market Coupling and the parameter choice, like the minimum exchange capacities introduced in 2020, on the market outcome. This article presents a framework to model Flow Based Market Coupling and analyse the impact of different levels of regulatory induced minimum trading capacities as well as the effect of the extension towards the Core region. Electricity prices, exchange positions and the number and nature of binding constraints in the market results under different market coupling scenarios are investigated. The results show that increased level of minimum trading capacities in CWE market coupling decrease the German net export position by up to 7 TW h or 23%, while French exports increase by up to 10 TW h or 9%. The different transfer capacity in the scenarios induce a price difference of up to 13%. Increased exchange capacities allow for more base load generation with the corresponding effects for the CO$${}_{2}$$ 2 emissions of the system. The nature of coupling constraints is highly dynamic and dependent on the system state, which makes the suitability of static NTC values in energy system scenarios questionable.